Future Business Leaders of America (FBLA) Business Law Practice Exam

What does implied authority refer to?

1. Authority explicitly defined in a contract

2. Authority given only in written form

3. Additional authority necessary for an agent to perform stated functions

4. Authority granted by law to all agents

The correct answer is: Additional authority necessary for an agent to perform stated functions

Implied authority refers to the additional authority that is necessary for an agent to carry out the functions that are explicitly stated in a principal-agent relationship. This concept recognizes that while the agent may have been given specific tasks to perform, certain actions may be assumed to be necessary to complete those tasks effectively, even if they are not explicitly outlined in the contract. For instance, if an agent is authorized to sell a product, they may have implied authority to take actions like negotiating terms or obtaining necessary materials to complete the sale, even if those specific actions are not detailed in their contract. This ensures that agents can execute their responsibilities without needing to seek the principal's approval for every minor decision or step they need to take, facilitating smoother transactions and operations. The other options touch on different concepts. Explicit authority is clearly defined and agreed upon in a contract, while written authority implies formal documentation that may not encompass necessary actions implied by the original task. Authority granted by law is a separate idea that pertains to what agents are allowed to do under statutes and regulations, not necessarily what is implied in their contractual relationships. Thus, recognizing the role of implied authority is crucial for understanding how agency relationships operate in practice.